The demand curve is the relationship between the quantity of a good and its price, they are inversely proportional. So when the price of a good increases,

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Presentation transcript:

The demand curve is the relationship between the quantity of a good and its price, they are inversely proportional. So when the price of a good increases, the quantity demanded decreases, and this is called “the demand Law”.

Two important effect Income effectSubstitution effect

Similarly, when the price of a good decreases, the quantity demanded usually increases. People can spend more and they will consume few alternative goods. The higher the share of income spent on that good, the higher the impact of an increase in real price of both consumer and higher will be the reduction of that demand.

We have three variable in the demand curve Price Quantity demanded Income

(In economics it is important to distinguish between moviments along curve and shifts of a curve) When a variable that it is not named on either axis changes, the curve shifts When a variable on an axis of the graph changes, the curve does not shift

An Example of demand curve The demand of Apples Price (Cents per Kg) Demand of Vinny Demand of Pauly Total Market Demand (thousands of tons) A B C D

The Graph

_Price_Income _Prices of related goods(substitutes: an increase in the price of one leads to an increase in the demand for the other; complements: an increase in the price of one leads to a decrease in the demand for the other) _Tastes_Expectation

Price of Apples VinnyPaulyMarket € 0, = 19 € 0, € 1, € 1, € 2, € 2, € 3,00 011

_Price (the quantity supplied rises as the price rises and falls as the price falls, and it is called the supplied law) _Input price (to produce outputs you have to use many inputs) _Technology_Expectations

Price of Apples Quantity of apples supplied € 0,00 0 € 0,50 0 € 1,00 1 € 1,50 2 € 2,00 3 € 2,50 4 € 3,00 5

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